A debt settlement offer is the amount for which the creditor is willing to settle. There are cases when the creditor sends out settlement offers to debtors who they think are at risk of non-payment or bankruptcy. However, most often, the debtor initiates the process, either personally or through a debt settlement program, by proposing to the creditor the settlement of the money owed the latter for a significantly lesser amount. The final amount is most often determined by how much the creditor is willing to accept. Read on to find out the essentials of this key component to debt settlement.
Choose Your Target
You need to realize that not all creditors are willing to sit down with you at the negotiating table if it would mean a shortfall on their end. Thus, it is important to choose which creditors are more receptive to debt settlement. Unsecured debts have a higher probability of getting a debt settlement offer compared to secured debts. Creditors of secured debts have collateral to foreclose, whereas unsecured creditors will be left with nothing when the debtor declares bankruptcy. So, the creditor with more to lose is most likely more willing to settle compared to others.
Wait for the Right Timing
Your creditor will not tender a debt settlement offer unless it is more than certain that the debt is either going to the collection agency or that the debtor will ultimately end up not paying. So, don’t initiate debt settlement within the first one or two months of getting behind on your payment. Since most creditors send accounts to collection agencies only after six months have passed since the account falls past due, they are most receptive to settle when the account is at least 3 to 4 months late on payments.
Strike when you can afford it
Do not immediately accept the offer just because it is 30-50% less than your account balance. The goal here is to settle your debt, not just to pull off getting an offer. If you cannot afford paying it, then it is not a good deal. It will cause you an even bigger problem if you enter into a settlement that you cannot afford to pay.
Just getting a debt settlement offer is not the be all and end all of debt settlement. In order for it to be something to get excited about, the offer must allow you to pay off your account and manage your accounts. Keep this in mind when negotiating a settlement with your creditor.